Iron Condor Strategy: High-Probability Income Generation
Master the iron condor - one of the most popular options strategies for generating consistent monthly income. Learn setup, strike selection, management, and when to deploy this high-probability neutral strategy.
What is Iron Condor?
Iron Condor is a neutral options strategy that combines a bull put spread and bear call spread to profit from low volatility. You simultaneously sell an out-of-the-money put and call while buying further out-of-the-money options for protection.
Maximum profit occurs when the stock stays between the short strikes at expiration. The strategy has defined risk on both sides through the long options.
TL;DR - Quick Summary
Iron Condor = Bull put spread + Bear call spread. Sell both sides out-of-the-money, collect premium from both. Profit if stock stays within your range (between short strikes). Max loss is capped by long options. The four-leg structure provides defined risk on both sides.
Calculate Your Iron Condor: See profit zones, breakevens, and Greeks instantly
Try Iron Condor Calculator →What is an Iron Condor?
An iron condor is a market-neutral options strategy that profits from low volatility and range-bound price action. It combines two credit spreads: a bull put spread below the current price and a bear call spread above it.
You're essentially betting that the stock will stay within a specific range until expiration. You collect premium from both the put and call sides, giving you a wide profit zone with defined maximum loss.
The Four Legs
Put Side (Bull Put Spread)
- 1. Sell OTM put (collect premium)
- 2. Buy further OTM put (protection)
- Example: Stock at $100
- Sell $95 put, Buy $90 put
Call Side (Bear Call Spread)
- 3. Sell OTM call (collect premium)
- 4. Buy further OTM call (protection)
- Example: Stock at $100
- Sell $105 call, Buy $110 call
Why Trade Iron Condors?
- ✓ High Probability: Win 65-70% of trades with proper management
- ✓ Defined Risk: Know your maximum loss before entering
- ✓ Double Premium: Collect from both put and call sides
- ✓ Time Decay Friendly: Positive Theta on both sides
- ✓ Capital Efficient: Lower margin than individual spreads
- ✓ Versatile: Works on stocks, ETFs, and indices
Real Example: Iron Condor on SPY
The Setup
Underlying: SPY at $450
IV Rank: 68
Days to Expiration: 35 DTE
Market Condition: Range-bound
Spread Width: $5 on each side
Target Credit: 25-30% of width
Risk/Reward: Risk $850 to make $150
The Trade
Sell 1 SPY $440 put @ $2.10
Buy 1 SPY $435 put @ $1.30
Credit: $0.80 ($80)
Sell 1 SPY $460 call @ $1.90
Buy 1 SPY $465 call @ $1.20
Credit: $0.70 ($70)
Total Credit Collected: $1.50 ($150)
Risk/Reward Analysis
Max Profit: $150 (credit collected)
Max Loss: $350 ($5 width - $1.50 credit)
ROI if Win: 42.9% ($150/$350)
Breakevens: $438.50 and $461.50
Profit Range: $438.50 to $461.50
POP: ~68%
Greeks Profile
Delta: ~0 (neutral position)
Theta: +$15/day (time decay profit)
Vega: -25 (profit from IV drop)
Gamma: Near zero (low directional risk)
Best Case: SPY at $450 at Expiration
Stock stays exactly where it is. All four options expire worthless.
Result: Keep full $150 credit (42.9% return in 35 days)
Good Case: SPY Between $440-$460
Stock stays within your short strikes. All options expire worthless.
Result: Keep full $150 credit
Breakeven: SPY at $438.50 or $461.50
Stock moves to breakeven point. One side loses exactly what you collected.
Result: $0 profit/loss
Max Loss: SPY Below $435 or Above $465
Stock moves through both strikes on one side. Loss is capped by long option.
Result: -$350 max loss (only loses on one side, never both)
How to Construct an Iron Condor: Step-by-Step
Review Implied Volatility
Implied volatility affects the premium collected on both spreads.
Use our IV guide to check current levels
Select Expiration (30-45 DTE)
30-45 days to expiration provides optimal Theta decay while giving you time to manage.
- • Too far out: Slower Theta decay
- • Too close: Higher Gamma risk, less premium
- • 30-45 DTE: Sweet spot for most traders
Determine Spread Width
Common spread widths are $5-10 for stocks and $5-15 for indices:
- • $5 wide: Higher ROI, less safety buffer
- • $10 wide: More safety, lower ROI
- • Target: Collect 25-33% of spread width
Select Short Strikes (Sell)
Choose your short strikes based on desired probability:
- • 16 Delta: 84% POP (conservative)
- • 20-25 Delta: 75-80% POP (balanced)
- • 30 Delta: 70% POP (aggressive)
Buy Long Strikes (Protection)
Buy options at your spread width away from short strikes. These define your max loss.
Example: Short $100 put, spread width $5 → Buy $95 put
Enter as Iron Condor Order
Enter all four legs as a single iron condor order for best execution.
Most brokers support iron condor orders. This ensures all legs fill together at your target credit.
Iron Condor Strike Selection Guide
| Approach | Short Strike Delta | POP | Premium | Best For |
|---|---|---|---|---|
| Conservative | 10-16 Delta | 84-90% | Low ($0.80-$1.20) | Beginners, small accounts |
| Balanced | 20-25 Delta | 75-80% | Medium ($1.20-$1.80) | Most traders (recommended) |
| Aggressive | 30-35 Delta | 65-70% | High ($1.80-$2.50) | Experienced, high risk tolerance |
Managing Iron Condors
Good management is the difference between profitable iron condor trading and consistent losses. Here's how to manage effectively:
Profit-Taking Rules
- ✓ Close at 7 DTE: Near-expiration gamma risk increases significantly
- ✓ Close after big IV drop: If IV crashes (like post-earnings), take profit early
- ✓ Close both sides together: Don't leg out - close entire iron condor as one order
When Position Is Tested
- 1. Don't panic: Stock touching short strike is normal - it's within your plan
- 2. Let it work: If >14 DTE, give position room to work - price often reverses
- 3. Roll tested side: If breached with time left, roll out 21-30 days for credit
- 4. Close if losing 2-3x credit: Don't hold losers hoping for recovery
Adjustment Strategies
1. Roll Tested Side Out
Buy back tested spread, sell same strikes 21-30 days further out for credit
2. Roll Tested Side Out & Out
Buy back tested spread, sell further OTM strikes with more time for credit
3. Close Entire Position
Take the loss and move on - accept you were wrong about range
When to Trade Iron Condors
Best Market Conditions
- ✓ Elevated implied volatility: Higher IV produces larger premiums on both spreads
- ✓ Range-bound markets: Stock trading sideways in defined channel
- ✓ After big moves: Post-earnings, post-crash when IV is elevated but volatility declining
- ✓ No major catalysts: No earnings, Fed meetings, or major events during trade
- ✓ Index ETFs: SPY, IWM, QQQ - more predictable, less gap risk
When to Avoid
- ✗ Very low implied volatility: Low IV produces smaller premiums on both spreads
- ✗ Strong trends: Stock in persistent uptrend or downtrend - price will breach strikes
- ✗ Before earnings: Gap risk too high, IV crush unpredictable
- ✗ Low liquidity stocks: Wide bid-ask spreads make entry/exit expensive
- ✗ Volatile individual stocks: High gap risk - better for indices
Best Underlyings for Iron Condors
Top Tier (Best)
- SPY: S&P 500 ETF - most liquid, tight spreads
- IWM: Russell 2000 - higher IV, better premiums
- QQQ: Nasdaq 100 - tech exposure, good liquidity
- SPX: Cash-settled, tax advantages, expensive
Good (Intermediate)
- DIA: Dow Jones ETF
- EEM: Emerging Markets
- GLD: Gold ETF
- TLT: Treasury Bonds
Proceed with Caution
- AAPL, MSFT: Mega-cap stocks - OK but watch earnings
- TSLA: High premiums but very volatile
- Small caps: Higher gap risk
Iron Condor Risk Management
Critical Rules
If max loss is $500, need $10,000+ account. Most pros risk 1-2% per trade
Don't put 5 iron condors on SPY expiring same day. Spread across weeks and tickers
Establish profit targets and loss limits in advance and execute them consistently
Exit if losing 2-3x the credit collected. Don't hope and pray for recovery
If winning <60%, move to lower probability strikes. If winning >80%, can be more aggressive
Calculate Your Iron Condors
Use our free iron condor calculator to see profit zones, breakevens, max profit/loss, and all Greeks for any iron condor.
Frequently Asked Questions
What is an iron condor strategy?
An iron condor is a neutral options strategy combining a bull put spread and bear call spread. You sell OTM options on both sides and buy further OTM options for protection. You profit if the stock stays within your short strikes, with defined maximum risk and high probability of profit.
How much money can you make with iron condors?
Typical returns are 10-20% of capital at risk per trade. With 65-70% win rate and proper management, monthly returns of 5-8% on deployed capital are realistic. Trading 2-3 iron condors per month can generate consistent income.
What is the maximum loss on an iron condor?
Maximum loss = (Spread width - Net credit) × 100. Example: $5 wide spreads, $1.50 credit = ($5 - $1.50) × 100 = $350 max loss. You'll only lose on one side (puts or calls), never both, even if the stock makes a huge move.
When should you trade iron condors?
Iron condors profit when the underlying remains within the short strikes through expiration, benefiting from time decay and declining implied volatility. The strategy carries defined risk through the long options on each side.
How do you manage an iron condor?
Position management involves monitoring whether the underlying remains within the short strikes. Common approaches include closing the position early, rolling tested spreads to different strikes or expirations, or closing the full position when the trade moves significantly against expectations.
What is the ideal iron condor width?
Common spread widths are $5-10 for stocks and $5-15 for indices. Wider spreads reduce risk per spread but lower the percentage return on capital at risk. Tighter spreads increase percentage returns but provide less buffer against movement.
Options Strategies Comparison Guide
| Strategy | Market Outlook | Max Profit | Max Loss | Break-Even | Best For |
|---|---|---|---|---|---|
| Iron Condor | Neutral | Credit received | Strike width - credit | Two points | Low volatility, range-bound markets |
| Covered Call | Neutral-Bullish | Strike - stock price + premium | Stock price - premium | Stock price - premium | Income on stock holdings |
| Credit Spread | Directional | Credit received | Strike width - credit | Short strike ± credit | Directional income plays |
| Debit Spread | Strongly Directional | Strike width - debit | Debit paid | Long strike + debit | Strong directional moves |
| Diagonal Spread | Moderately Directional | Variable (rolling) | Net debit | Variable | Time decay + direction |
| Straddle | High Volatility | Unlimited | Premium paid | Strike ± premium | Big moves expected |
| Strangle | High Volatility | Unlimited | Premium paid | Two points | Cheaper volatility play |
| Butterfly | Low Volatility | Strike width - debit | Debit paid | Two points | Pinning at strike |
Iron Condor
Outlook: Neutral
Max Profit: Credit received
Best For: Low volatility markets
Quick Strategy Selection Guide
By Market Outlook
- 🟢 Bullish: Debit Call Spread, Bull Put Spread
- 🔴 Bearish: Debit Put Spread, Bear Call Spread
- 🟡 Neutral: Iron Condor, Butterfly, Calendar
- 🟣 High Volatility: Straddle, Strangle
By Goal
- 💰 Income: Covered Call, Credit Spreads, Iron Condor
- 📈 Growth: Debit Spreads, Long Options
- 🛡️ Hedging: Protective Put, Collar
- ⚡ Volatility: Straddle, Strangle, Calendar
Related Options Strategies
Butterfly Spread
Similar profit zone with lower capital requirement but narrower profit range.
Condor Spread
Wider profit range than iron condor with different strike spacing.
Credit Spreads
Building blocks of iron condors. Master these first for better understanding.
Understanding related strategies helps you choose the best approach for your market outlook and risk tolerance. Each strategy has unique characteristics that make it suitable for different market conditions.